Norbert Schlenker wrote:The taxtips.ca calculator, for example, says the rentier realizing $50k in capital gains and $40k in Canadian dividends pays only about 5% of it in personal federal income tax. That might just stick in the craw of the poor schlub who grosses $20k/year, pays more than 5% of it in income tax, and then ponies up for CPP and EI too.

So, would they be right, or wrong, to not include the taxes paid by the corporation when making this argument?

Speaking for MD's, they incorporate to save tax. There is no liability protection provided by earning your income through a CCPC.

Ultimately, the owner of the CCPC still pays the same amount of personal tax once it is withdrawn as if they earned it directly*. In very general terms, the corporate tax + taxes due upon withdrawal of funds from the CCPC = the tax rate on the income if earned personally. It's far more complicated than that, but CRA aims for that general concept also referred to as "integration".

The tax savings of incorporating come from the deferral of paying the full personal tax, a deferral which can span decades.

*Assuming identical tax rates at the time of earned income to the time it is withdrawn from the CCPC.

According to Mr Lack, the hedge fund industry lost more money in that one year [i.e. 2008] than all the profits it had generated during the previous 10 years. In fact most likely, he says, is that hedge funds lost more money for their investors in 2008 than the industry had made in its entire history. If true, that would put the industry up there with airlines and banks in the annals of long-term, non-productive performers from an investor perspective.

Not that the managers have suffered the same way, of course. That is the brilliance of the hedge fund model. Between 1998 and 2010, the book shows, even on favourable assumptions hedge fund managers earned an estimated $379bn in fees, out of total investment gains (before fees) of $449bn. In other words, they took 84 per cent of the investment profits their funds made, leaving just 16 per cent for the investors.

Once you make adjustments for survivorship bias, fund of funds fees and so on, it is probable, he suggests, that hedge fund managers have kept all the money made, and investors have in aggregate received nothing.

Norbert Schlenker wrote:The taxtips.ca calculator, for example, says the rentier realizing $50k in capital gains and $40k in Canadian dividends pays only about 5% of it in personal federal income tax.

That was the kind of fear I tried to express by saying the dividend tax credit would be an easy target for being cut. Even though the credit is "fair" because its role is to prevent double taxation of coporate profits, it essentially benefits the "rich", as I have yet to see a minimum-wage worker able to amass a big portfolio of dividend-paying stocks.

Hence I would be very interested to know what fraction of the zero-income-tax crowd do so because of this particular tax credit.

EmperorCoder wrote:Hence I would be very interested to know what fraction of the zero-income-tax crowd do so because of this particular tax credit.

People who paid no tax had 2.16 billion dollars in taxable amount of dividends. That is 5 % of all dividend income claimed by all taxpayers. (Wow 46 billion dollars in total txbl dividends, good job Canada.)

Here is a graph that shows the average amount per taxfiler in each income category. eg. The average taxfiler who paid no tax and earned 70-80k had 21k in txbl amount of dividends. Where the same category of person with tax paying status had 2k in divs.

That income group has ~963k taxpayers and 3.3k non-taxpayers. About 25% of the taxpayers had dividend income and 54% of the non taxpayers had dividend income.

add: since the average dividend in the 70-80k group of non taxfilers (all 3.3k of them) was 21k but only 54% of those 3.3k actually used this line of the tax return that means the average of the taxfilers who actually had dividends was $39k.

EmperorCoder wrote:Hence I would be very interested to know what fraction of the zero-income-tax crowd do so because of this particular tax credit.

People who paid no tax had 2.16 billion dollars in taxable amount of dividends. That is 5 % of all dividend income claimed by all taxpayers. (Wow 46 billion dollars in total txbl dividends, good job Canada.)

Here is a graph that shows the average amount per taxfiler in each income category. eg. The average taxfiler who paid no tax and earned 70-80k had 21k in txbl amount of dividends. Where the same category of person with tax paying status had 2k in divs.

That income group has ~963k taxpayers and 3.3k non-taxpayers. About 25% of the taxpayers had dividend income and 54% of the non taxpayers had dividend income.

A lot of dividend recipients who owed no tax are probably spouses of entrepreneurs and professionals who own incorporated businesses and get dividends from preferred shares in that business. Very routine tax planning.

I was wondering why I get a different percentage(32%) and it seems that the 42% number includes credits that aren't accounted for on income tax but are paid separately like the CCTB the UCCB and the GST credit.

Low employment income, the 34% of filers who paid no tax only had 4% of all employment income.

Social assistance, 16% of the filers who paid no tax(the 34%) used this line. 96% of all the money paid in social assistance went to non-taxpaying filers.

For Bruce theory # 2, babysitters but I can say that 46% of the non-taxpaying filers had employment income but only 32% paid CPP (+1.4% on self employment). Babysitting type income is all I can think of because only 32% paid into EI as well. IOW there were 1.1 million people with employment income who paid no CPP and 1.3 million who paid no EI. 84% of the people who paid no EI earned less than 10K, 74% earned less than 5k.

There were 99k people using the farming income line who paid no tax. They collectively claimed a $430 million loss AFAICT. These numbers come from subtracting taxable return numbers from the numbers on all returns. All returns had $1645 million in farming income for 367k filers total, so not so profitable.

Partnership income also showed a loss of 33 million for the non-taxpayers.

Old folks: 27% of non-taxpaying filers are collecting CPP or QPP but only 25% claim the age amount. 2.2% use the split pension income amount.

newguy wrote:The average taxfiler who paid no tax and earned 70-80k had 21k in txbl amount of dividends.

Wow, this statistic is like a punch in the face. A tax system that allows such high income earners to pay no income tax cannot be considered fair. Do you consider Alternative Minimum Tax in these statistics ?

newguy wrote:The average taxfiler who paid no tax and earned 70-80k had 21k in txbl amount of dividends.

Wow, this statistic is like a punch in the face. A tax system that allows such high income earners to pay no income tax cannot be considered fair. Do you consider Alternative Minimum Tax in these statistics ?

I don't know if you read my edit but the average number per actual person getting dividends is $39k. The $21k is the average for all people earning 70-80k whether they claimed dividend income or not.

There is no line for AMT so I'm not sure how that's accounted for.

newguy
add:
Found this on the cra site for these stats.

However, we classified some returns as taxable even when the return showed a total income less than the allowable basic personal amount of $9,600. This happened for:

individuals subject to the minimum tax
...

So I'm assuming these numbers include all the minimum tax returns as well.

add2: I was so busy answering technical questions that I forgot the emotional one.

I don't mind these people not paying income tax as they've paid corporate tax already. Even if you don't like it there were 1810 non-taxpaying filers claiming dividends in that income range and close to a 967k people who did pay tax at the same income. So no biggie.

Control your primitive reactions. Sure, somebody you know is going to make a killing by bandwagoning on a hot stock or sector—perhaps by picking yesterday’s winner. But investing is a marathon, not a sprint.

Look at last year’s winners if you must. But don’t buy anything based solely on past performance. The biggest investment enemy, after all, is the one we face in the mirror each day.

Filling out tax returns will never be a delight. But if reform included simplification, the task might become a bit less onerous. And if a few accountants and tax lawyers were induced to become engineers and doctors instead, society will have moved a big step in the right direction.

Both links you posted have hung up my computer (twice for each link) this evening, and required a full reboot - and some links you have posted previously have done the same...what is up there?

Top one worked for me. What browser and OS combination (with versions) are you running. FWIW, I tried it with Chome v17 (beta and AdBlock Plus) installed and IE 9. Running Windows 7, with MSE anti-virus. In the past I've found the FP website has many links to slow ad servers that can hang things until they finally get around to responding.

I am using Firefox 9.0.1. and have Ad Bloc installed. Just something odd with links to National Post for me perhaps; as already stated this has happened to me before with NP links from PnP - not to be accusatory. Clicking the link completely hangs up my computer and I need to do a hard reboot. Is it possible that PnP is using Apple and that might cause the problem with direct links?

20. When you finally do become wealthy, hire other people to do this for you and watch them. Go about enjoying the short time we all have left on earth away from the screen. Kiss your kids and play tennis and read books and get drunk during the day just because and go to Australia for a month and buy that car you drove in high school - fix it up and take your sweetheart for a ride. Don't spend that time reading about inverse correlations between German bund yields and the gold/oil ratio. Because that's all masturbation and really, who gives a sh*t?

“Sometimes you are going to sell early and wish you would’ve held on, other times you will hold on a
little bit longer and wish you would’ve sold early - this is just part of the game.” - Frank Zorilla via Abnormal Returns